EIP-7702 and the Growing Risks to Ethereum-Based Tokens

Ethereum’s evolution has always been a balancing act between innovation and security. The recent activation of EIP-7702, part of the Pectra upgrade in May 2025, exemplifies this tension. While the proposal aims to enhance user experience by enabling Externally Owned Accounts (EOAs) to delegate execution to smart contracts, it has inadvertently opened new avenues for exploitation. For investors, the implications are clear: the same technological leap that promises greater flexibility for Ethereum-based tokens also introduces systemic risks that could undermine confidence in the ecosystem.

A Double-Edged Sword: EIP-7702’s Promise and Peril

EIP-7702 allows EOAs to temporarily adopt smart contract functionalities—such as batch transactions, gas sponsorship, and programmable permissions—without altering their addresses or infrastructure [3]. This innovation bridges the gap between EOAs and Smart Contract Accounts (SCAs), streamlining interactions with decentralized applications (dApps) and reducing onboarding friction [5]. For instance, users can now execute multiple DeFi actions in a single transaction, cutting gas costs and improving efficiency [4].

However, this flexibility comes at a cost. The delegation mechanism, which relies on a setcode transaction to authorize a smart contract, has become a vector for phishing attacks. In August 2025, a $1.54 million scam exploited EIP-7702’s batch execution feature, using fake DeFi interfaces to trick users into approving malicious contracts that drained their wallets [3]. Over 97% of observed delegations under EIP-7702 have been linked to “sweepers”—automated contracts designed to siphon funds from compromised addresses [3]. These exploits highlight a critical flaw: the delegation system prioritizes convenience over caution, leaving users vulnerable to social engineering and poorly audited contracts [4].

The Investment Risks: Beyond Immediate Losses

For token investors, the risks extend beyond isolated scams. EIP-7702’s design challenges long-standing security assumptions in Ethereum’s architecture. For example, the tx.origin identifier—once a reliable way to distinguish EOAs from smart contracts—is now compromised, as delegated EOAs can mimic pure EOAs [1]. This creates vulnerabilities in protocols relying on tx.origin checks, such as governance mechanisms in VotingEscrow or liquidity pools in DeFi. A re-tokenization attack via delegated EOAs could destabilize these systems, eroding trust in tokenized assets [1].

Moreover, the opt-in nature of delegation means that even cautious users are not entirely safe. If a wallet provider or dApp defaults to a poorly secured delegation model, users may unknowingly expose their funds to risks. This systemic exposure is particularly concerning for institutional investors, who often rely on multi-sig wallets and audited contracts to mitigate risks [4].

Mitigating the Risks: A Path Forward

The Ethereum community is not blind to these dangers. Platforms like Uniswap are already integrating EIP-7702-compatible wallets to enhance user experience while emphasizing security [5]. Developers are advised to audit delegated contracts rigorously and implement strict access controls [5]. For users, best practices include:
- Multi-sig wallets: These add an extra layer of security by requiring multiple approvals for transactions [4].
- Gas sponsorship tools: These reduce the risk of transaction failures due to nonce chaos or gas estimation errors [4].
- Audited contracts: Only delegate execution to contracts verified by reputable auditors [2].

Yet, these measures are reactive. The broader ecosystem must address the root issue: EIP-7702’s design inherently prioritizes usability over security. While Ethereum’s account abstraction model is evolving, investors must weigh the benefits of innovation against the potential for large-scale exploitation.

Conclusion: Innovation vs. Security in the Ethereum Era

EIP-7702 represents a pivotal step in Ethereum’s journey toward a more flexible account model. However, its risks underscore a fundamental challenge: how to foster innovation without compromising the security that underpins trust in digital assets. For investors, the lesson is clear: Ethereum-based tokens are not immune to the vulnerabilities of their underlying protocols. As the ecosystem navigates this paradox, a cautious, diversified approach—combined with a commitment to robust risk management—will be essential to safeguarding long-term value.

Source:
[1] Understanding EIP-7702's Impact on Our Contracts and [https://tranchess.medium.com/understanding-eip-7702s-impact-on-our-contracts-and-mitigating-security-risks-de705f249236]
[2] EIP-7702 and the Dark Side of Ethereum's Innovation [https://www.ainvest.com/news/eip-7702-dark-side-ethereum-innovation-security-core-investment-metric-2508/]
[3] Security analysts warn about EIP-7702 flaw after user loses ... [https://www.cryptopolitan.com/eip-7702-user-loses-1-54m-phishing-attack/]
[4] EIP-7702 and the New Era of Smart Contract Risk in Crypto ... [https://www.ainvest.com/news/eip-7702-era-smart-contract-risk-crypto-assets-navigating-post-pectra-threat-landscape-2508/]
[5] Uniswap, Ethereum, and EIP-7702: How This Upgrade is ... [https://www.okx.com/en-us/learn/uniswap-ethereum-eip-7702-defi-upgrade]